In March, 1976, Continental Mortgage Investors, a Boston real estate investment trust that was $550 million in debt, filed for bankruptcy under Chapter 11. This meant creditors would be held at bay while management tried to reorganize its affairs.

A month later Continental's creditors asked the court to change the proceeding to Chapter 10, meaning that an independent trustee would reschedule company debts. In May the Securities and Exchange Commission followed suit.

Three months later Continental sought to counter the move from 11 to 10. The company finally acceded to creditors wishes to change to a chapter 10 situation, but in October a federal judge declared continental bankrupt and that its assets be liquidated.

Eight months of maneuvering in court, the resignations of a half dozen trustees, hundreds of thousands of dollars spent in legal fees - Continental's prolonged agony is not typical of that experienced by other large, failing businesses under the 80-year-old U.S. bankruptcy system.

Last month the House Judiciary Committee voted 26-3 in favor of the first revision of the system in 40 years. The full House is expected to take up the bill soon after the recess.

The proposed overhaul would not change the fundamental principle of the bankruptcy system - to offer the debtor court protection against creditors while he seeks to repay - but it would make it more efficient and less costly.

The present system, in the words of co-sponsor Rep. Don Edwards (D.-Cal.), "was designed in the horse and buggy era of consumer and commercial credit."

Last year there were approximately 250,000 bankruptcy filings, a 25-fold increase since World War II. They involved nine million creditors, $27 billion in assets and $43 billion in liabilities. Of these 35,000 were business bankruptcies. Yet some state laws still deal with the number of cows a debtor may be allowed to keep.

Among the major provisions of the uniform bankruptcy bill, reported out after more than two years of work, are the following:

An independent bankruptcy court system consisting of judges appointed by the President and U.S. trustees named by the Attorney General.

Consolidation of business reorganization laws into a more flexible arrangement based on adequate disclosure of the debtor's plan.

Outlawing of reaffirmation of debt agreements, which would encourage the consumer to elect a repayment plan rather than straight bankruptcy.

The first two provisions, had they been in effect last year, would have expedited the Continental Mortgage case. Under present law, bankruptcy courts have limited jurisdiction. Lawyers for debtors and creditors spend much time and money arguing over whether the court has jurisdiction in certain matters.

Upgrading the status of federal bankruptcy judges, formerly called referees, to a status equal to that of district court judges, would give them wider powers. This would broaden the authority of the bankruptcy court system, a move opposed by the Judicial Conference and Supreme Court Chief Justice Warren Burger. (The conference is composed of federal judges above the bankruptcy level."

The revision would provide a new class of trustees, appointed by the Justice Department and paid salaries by the taxpayers.

A last minute amendment by Rep. Bill Lee Evans (D.-Ga.), a former bankruptcy judge, would allow the Attorney General to name an assistant trustee from the private sector if he wished.

Federal trustees are not intended to be assigned to large cases, according to committee staff, but will prove their worth in small cases involving $200 or less in assets where trustees fees commonly consumer 90 per cent of those asserts.

Currently, bankruptcy judges assign lawyers as trustees to preserve the bankrupt's holdings and supervise the distribution of assets to creditors. In small cases, law clerks and third year law students may be assigned.

Manuevering between Chapters 10 and 11 is often used as a delaying tactic as different classes of creditors try to get a bigger piece of the pie. For example, under Chapter 10, senior creditors must be paid in full before anyone else, even if they waive that right to speed up the proceeding.

Under the Judiciary Committee bill, chapters 10 and 11 would be combined to offer a flexibility that is not possible under present law.

At present, a time consuming disclosure statement is required by the SEC of debtors seeking Chapter 10 status to protect small bondholders. Under Chapter 11, creditors must be asked to accept a reorganization plan without knowledge of all the details.

The pending legislation only requires that available and relevant information on the debtor be supplied to the different classes of creditors as needed. Thus the creditors would be free to arrange among themselves the best and quickest resolution. Only if they are unable to agree does the bill provide for mandatory distribution of assets. The SEC is opposed to this flexibility.

Between 85 and 90 per cent of all bankruptcies are filed by individual consumers. Most of these are straight bankruptcies which involve the liquidation of assets and discharge of debts.

The House bill seeks to encourage more debtors with steady incomes to set up three-year repayment plans. To do so, the bill prohibits the practice of reaffirmation, which requires a debtor to continue paying old debts in exchange for receiving new credit.